Simple Interest: Calculating

Interest, Maturity, Future

and Present Values
Learning Objectives
1. Illustrate simple and compound interests.
2. Distinguish between simple and compound interests.
3. Compute interest, maturity value, future value, and present
value in simple interest environment.
 Definition of terms
person (or institution) who owes the
Lender or Creditor money or avails of the funds from the
lender

amount of time in years the money is

Borrower or Debtor borrowed or invested

date on which money is received by the

Origin or Loan Date borrower

Repayment or Maturity person (or institution) who invests the

Date money or makes the funds available

date on which the money borrowed or

Time or term loan is completely repaid
 Definition of terms

amount after certain years that the lender

Principal receives from the borrower on the
maturity date

amount paid or earned for the use of

Rate money

amount of money borrowed or invested on

Interest the origin date

annual rate, usually in percent, charged by

Maturity Value of
the lender, or rate of increase of the
Future Value investment
 INTEREST
Simple Compound
Interest Interest

Borrower Lender

paying earning
interest interest
 INTEREST
Simple Compound
Interest Interest

• It is computed on the original • It is computed on the principal

principal and on the accumulated past
• interest.
The interest remains constant
• It includes the interest from the
throughout the term.
current year and added on the
• It is the product of principal, principal at the start of the
rate of interest, and time. following year.
• Previous interest earns interest
as well
 Example 1
Due to COVID -19 pandemic Miss Dada, a female resident of Brgy. May Pagkakaisa, thinks of a
business that can provide for her needs as well as the need of her neighbors so she can be of
help even in this trying time. She decided to borrow from a bank with a start-up capital of
₱50,000.00 at 7% simple interest rate payable within 5 years. Compute for the interest yield.

Simple Interest
Time Principal Interest Maturity Value
Rate
Solution Answer
1 50,000 7 % (50,000)(0.07)(1) 3,500 53,500
2 50,000 7 % (50,000)(0.07)(2) 7,000 57,000
3 50,000 7 % (50,000)(0.07)(3) 10,500 60,500
4 50,000 7 % (50,000)(0.07)(4) 14,000 64,000
5 50,000 7 % (50,000)(0.07)(5) 17,500 67,500
 Example 2
Due to COVID -19 pandemic Miss Dada, a female resident of Brgy. May Pagkakaisa, thinks of a
business that can provide for her needs as well as the need of her neighbors so she can be of
help even in this trying time. She decided to borrow from a bank with a start-up capital of
₱50,000.00 at 7% interest rate compounded annually and payable within 5 years. Compute
for the interest yield.
Compound Interest
Time Amount at Interest Maturity Value
the start of Rate
year Solution Answer
1 50,000 7 % (50,000)(0.07)(1) 3,500 53,500
2 53,500 7 % (53,500)(0.07)(1) 3 , 745 57,245
3 5 7,245 7 % (57,245)(0.07)(1) 4 , 007.15 61,252.15
4 6 1,252.15 7 % (61,252.15)(0.07)(1) 4,827.65 66,079.80
5 66,079.80 7 % (66,079.80)(0.07)(1) 4,625.59 70,705.39
Determine whether each statement is TRUE or FALSE.
1. Compound interest is computed on the principal TRUE
and also on the accumulated past interests.
2. It is better to deposit in a bank that offers simple FALSE
interest than a bank that offers compound interest.
3. A borrower of debtor prefers compound interest FALSE
rather than simple interest.
4. Compound interest works well if you save early for TRUE
retirement or invest early.
5. The longer it takes for you to pay a debt the smaller FALSE
the interest you pay.
 SIMPLE INTEREST
Simple interest is computed entirely on the original principal by
simply multiplying together the principal, rate, and time.

𝐼 𝑆 = 𝑃𝑟𝑡
where:
simple interest
principal or the amount invested or borrowed
simple interest rate
time in years
 SIMPLE INTEREST
The formula can be manipulated to obtain the following
relationships.

𝐼𝑠
𝑃= formula for finding the principal
𝑟𝑡
𝐼𝑠
𝑟 = formula for finding the rate
𝑃𝑡
𝐼𝑠
𝑡= formula for finding the time
𝑃𝑟
 SIMPLE INTEREST
To find the maturity (future) value , you can use either of the
following:

𝐹 = 𝑃 + 𝐼 𝑠 or 𝐹 = 𝑃 (1+𝑟𝑡 )
Example 3
Given: , , . Find the simple interest .

Use the formula in finding the Simple 𝐼 𝑠 = 𝑃𝑟𝑡

Interest
Substitute the given to the formula 𝐼 𝑠 =18,000( 0.03)(5)
Solve 𝐼 𝑠 =₱ 2,700.00
Example 4
Given: , , . Find the rate .

𝐼 𝑠
𝑟 =
𝑃𝑡
Use the formula in finding the rate

4,000
Substitute the given to the formula 𝑟=
( 20,000 ) ( 4 )
Solve 𝑟 =0.05
𝑟 =5%
Example 5
Given: , , . Find the time .

𝐼𝑠
Use the formula in finding the time 𝑡=
𝑃𝑟
700
Substitute the given to the formula 𝑡=
( 40,000 ) ( 0.07 )
Solve year
 1
𝑡=
Example 6 3
Given: , months, . Find the time maturity value .

Use the formula in finding the Maturity

Value
𝐹 = 𝑃 (1+𝑟𝑡 )
Substitute the given to the formula
[
𝐹 =15,000 1+ ( 0.02 )
1
3( )]
Solve 𝐹=₱ 15,100.00
Try it
Complete the table below by finding the unknown.

Principal Rate Time Interest Maturity Value

₱ 45,000 2% years ₱ 2 , 250 ₱ 4 7,250

₱ 95,000 1 .2 % years ₱ 4 , 560 ₱ 99,560
₱ 1 05,000 3% years ₱ 9,450 ₱ 114,450
Try it
Complete the table below by finding the unknown.

Principal Rate Time Interest Maturity Value

₱ 3 5,000 5% years
2 .5 % years ₱ 5,580
₱ 1 25,000 4% ₱ 1 34,450
Solve the following problems completely.
1. A businessman applied for a loan of Php 500 000.00 in a bank with a
simple interest of Php 157 500.00 for three years. What rate of interest is
being charged?
2. Mrs. Smith deposited Php 240 500.00 in an account that gives 3% simple
annual interest. How much is in the account after five years?
3. Mr. Reyes borrowed Php 250 000.00 from a bank that charges 4% per
annum. How much should he pay after three years?
4. Mrs. Santos invested a certain amount at 8% simple annual interest. After
six years, the interest she received amounted to Php 48 000.00. How
much did she invest?
5. Mr. dela Cruz borrowed Php 15 000.00 from a multi – purpose
cooperative that charges 3% annual interest. How much is the interest
after two years?